It Will Take Years for Your Paycheck to Recover From the Great Recession

The
long and severe recession is crushing wages, as the long-term
unemployed settle on jobs that pay far less than their old gigs. A
big decline in wages is a rare side effect of economic downturns since the
Great Depression--the only other recession that featured large wages
cuts was in 1981-82. "But the latest downturn is already eclipsing that
one," the Wall Street Journal's Sundeep Reddy
reports. And with joblessness hovering above 9 percent for 20 months,
and likely to stick there for most of this year, wages could drop
further.

From 2007 to 2009, the majority of people who'd had job
for three years before they were fired took a pay cut when they found
work again. And more than a third of them took at least a 20 percent
cut. It will take years for their wages to bounce back to pre-recession
levels.

The one upside to your long-term pain is that lower
wages make American companies more competitive and able to hire more
people. That could make the U.S. richer over time.

How Will the White House Deal with This? "I think you will hear Democrats talk more and more about wage
insurance--having government temporarily make up the shortfall between
old and new jobs--especially with Gene Sperling back in the White
House," Reuters' James Pethokoukis
predicts. "He is a big proponent of the policy. And we shouldn’t forget
that John McCain proposed something like this back in 2008 during the
campaign..." At the time, Pethokoukis notes that such a plan would be
super expensive, and that even the more modest "wage insurance"
proposals could make labor markets "less mobile and dynamic as there
would be less incentive for workers to get back into the workforce or
start a new business."

While compensation falls as the jobless have to settle into
new, less-lucrative jobs, prices are also falling in other areas,
especially in real estate. ... Buying power may not be declining as much
as wages, although it’s certainly not increasing. ... The best way to
resolve this problem is, not coincidentally, the best way to resolve the
housing crisis and other economic woes: stimulate job-creating growth.
Unfortunately, as the Obama administration pursues its regulatory
expansion, it will disincentivize that kind of domestic investment,
which will perpetuate this problem for at least another two years.

Unions Can't Help at This Point, Either "At this point, I can't tell a plausible story in which labor
reverses decades of erosion and roars back to a central role in American
economic or political life," The Washington Post's Ezra Klein
notes. "Maybe someone else can--and if so, I'd
like to hear it--but I can't. The question is what replaces labor. At
the workplace level, the answer is probably nothing."

This Is the Lingering Impact of the Recession, Bill McBride
writes at Calculated Risk, even for people who can find jobs. He notes that
"wages are typically sticky downward for those workers who do not lose
their jobs--but for those who lose their jobs, wages can fall sharply
when they eventually find new work (this happened in the early '80s
too)."

It's Gonna Be Hard to Dig Out of This Hole, The Atlantic's Derek Thompson
observes.

To give you a sense of how deep our employment hole is,
consider one statistic: Even if we doubled the rate of December's job
growth, we would still only achieve full employment by the mid-2020s.
... Despite months of positive economic data, this is still an economy
where hundreds of thousands of workers are giving up looking for jobs
every month. This has the effect of artificially reducing the
unemployment rate because it hides more than a million working age
Americans from the BLS's unemployment calculations. But make no mistake,
most of those workers are coming back and their return will probably
raise the unemployment rate before we see a steady fall.

News reports are focusing on the Germanwings pilot's possible depression, following a familiar script in the wake of mass killings. But the evidence shows violence is extremely rare among the mentally ill.